INSEAD Harv ard Business School Procter and Gamble Europe: Ariel Ultra’s Euroband Strategy INSPECTIONNot For Reproduction COPY 05/2000-4816 This case was written by Professor Christopher A. Bartlett at Harvard Business School, Ph.D. candidate Alice de Koning at INSEAD, and Professor Paul Verdin Affiliate Professor at INSEAD and at Catholic University of Leuven as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 1999 INSEAD-HBS, France-USA. N.B. PLEASE NOTE THAT DETAILS OF ORDERING INSEAD CASES ARE FOUND ON THE BACK COVER. COPIES MAY NOT BE MADE WITHOUT PERMISSION. INSPECTIONNot For Reproduction COPY Harvard Business School INSEAD 1 One Sunday night in July of 1989, Claude Meyer and his delivery team for Ariel Ultra were on a train speeding from Brussels to Paris. They had spent 18 months developing P&G’s first compact laundry detergent for the European market, and now, as they were finalizing the details of a meticulously planned pan-European launch, they learned that Unilever was about to launch a similar product in France—two months ahead of P&G. Meyer, European Regional Vice President for laundry products, and his team were brainstorming responses to their longtime rival’s pricing tactics, package sizes, and a premium-niche marketing strategy, all of which differed significantly from P&G’s European plan. As the train sped towards Paris, they debated whether to change their approach to the French market to meet Unilever’s challenge, or continue with their original intention to implement a consistent Europe-wide strategy. INSPECTIONNot For Reproduction COPY P&G Europe: Background and History Twenty years earlier, the problem of responding to Lever’s launch would have been less complicated. At that time, each fully-integrated major European subsidiary was structured as a microcosm of P&G in the US, often headed by expatriate American managers, and typically reflecting the unique culture, values, marketing practices, and financial discipline that P&G had developed to become the leading consumer packaged goods company in the United States. Within that strong corporate framework, however, subsidiary General Managers (GMs) became “the kings in their countries.” Each GM had a clear mission to adapt P&G’s proven products for his local market, and to use the company’s time-tested brand management approach to gain leadership in his country. Selecting from a portfolio of products, typically originating in P&G’s domestic operations, they built local positions that fit with their specific country needs and market opportunities.1 A small regional office in Brussels was created to control some central research capabilities housed in the European Technical Center (ETC), and later extended its role to provide minimal coordination of subsidiary activities. (Despite its development into a broad-based regional headquarters, it was still referred to as ETC). Under this model, P&G’s European subsidiaries developed into independent, largely self-sufficient, and highly entrepreneurial operations with a sense of internal competition among the GMs that helped drive rapid growth through the 1960s and 1970s. ETC’s role in this period was primarily to provide administrative oversight and support as called for by the GMs. Although the majority of senior management in P&G Europe in this era were US expatriates, by the late 1970s a “cadre” of promising young local managers were offered the opportunity to spend a few years in P&G’s Cincinnati headquarters before moving back to Europe. The ultimate career goal of many was to become a subsidiary GM — each the “king” in his home country’s operation. It was about this time that P&G’s traditional organization model began to change. 1 In several instances, European product formulations and brand names became more successful than the US transplants. For example, while Tide detergent did not do well, a European laundry formulation with a localized brand name, Ariel, was introduced in several markets in the 1960s. The formula, packaging, and position differed from one country to the next, but the brand became P&G’s flagship detergent in Europe. Not For Reproduction Copyright © 1999 INSEAD-HBS, France-USA. INSPECTION COPY4816 Harvard Business School INSEAD 2 European Integration: Round One During the last half of the 1970s, the political and economic entity of the European Community finally began to develop into reality. It was triggered in part by the 1974 oil shock, and the resulting economic downturn, and subsequent competitive pressures forced many companies to consider the value of better cross-market coordination within Europe. Because petrochemicals were the base of many of its raw materials, P&G was particularly impacted by these changes, and by the late 1970s, under the leadership of Ed Artzt, Group Vice President for Europe, the company was making its first serious attempts at pan-European coordination of the autonomous subsidiaries. ETC began gaining clout. The first organizational group to take a clear step toward European integration was the product development division (PDD) headed by Wahib Zaki, a dynamic leader who was concernedNot about For the Reproductioninefficiencies and duplications caused by the fact that most PDD staff INSPECTIONwere located in the subsidiaries. COPY Zaki recognized that by gaining consensus in product formulas, he could not only reduce product development time and costs, but could also leverage the strong development capabilities residing in several subsidiaries. As a first step, Zaki created Euro Technical Teams of PDD staff from the country organizations, assigning them to joint European projects. In 1980, with the support of Ed Artzt, he further formalized this European link by having subsidiary-based product development staff report to two bosses: a PDD director at ETC and their local subsidiary GM. The change did not come easily however, as a German PDD manager recalled: “As a junior person, I was in a very difficult position. ETC expected me to get my GM into line on European developments, and the GM expected me to hold off ETC on standard formulations...Only strong people could handle the situation.” Nonetheless, by the early 1980s, a number of other functions also began exerting more Europe-wide coordination. Purchasing was a classic example. Raw materials represented a major portion of P&G’s product costs, yet there were major discrepancies in the prices charged for chemicals sold to the country organizations, often by the same suppliers. Recognizing the potential economies, ETC purchasing staff negotiated a European price for large-volume supplies and developed a list of preferred suppliers. Predictably, local resistance was strong, and purchasing agents in the subsidiaries often ignored the European contracts and recommendations. Again, with senior management’s support, ETC formalized the initial loose links in 1982 by centralizing the purchasing responsibility for key bulk ingredients and relocating many core purchasing activities to Brussels. During the same period, the size and role of the regional finance manager’s staff also increased. With a mandate from Artzt to gain tighter control of overhead expenses that were running more than 50% higher than equivalent expense levels in the United States, the European finance staff began taking a much more active role in tracking and controlling subsidiary costs. And soon after, manufacturing and engineering followed suit, with ETC staff taking a stronger role in subsidiary plant policy, resulting in a more matrixed relationship with subsidiary managers responsible for these operations. (See Exhibit 1 for a representation of the organization in 1982). The most difficult challenges in providing more effective coordination were undoubtedly felt by the marketing activities that had been so strongly rooted in the national subsidiary Not For Reproduction Copyright © 1999 INSEAD-HBS, France-USA. INSPECTION COPY4816 Harvard Business School INSEAD 3 organizations. The first serious attempt at coordinating European marketing strategy was the so-called “Pampers experiment” of the late 1970s, in which a manager from the German subsidiary was moved to ETC and given responsibility for overseeing the marketing activities for disposable diapers across all subsidiaries. The experiment ended in failure when subsidiary GMs, no longer feeling responsible, withdrew local support for the brand. Eventually, management decided to abandon the experiment, and in the early 1980s, responsibility for marketing remained firmly in the hands of subsidiaries. The Birth of Euro-Branding: The Vizir Launch Despite the failure of the Pampers experiment, ETC management remained convinced that some form of coordinated European marketing strategies were vital if the company was to eliminateNot the diseconomiesFor Reproduction of its product and brand fragmentation. (Ariel, for example, was INSPECTIONproduced in nine different plants, COPY had nine different formulas and was positioned for low- and high-temperature washes, depending on the market.) Even more worrying was the increasing frequency of competitive leapfrogging, as companies like Unilever, Henkel, and Colgate took advantage of P&G’s uncoordinated roll-out of products and won first-mover advantages in new markets—often by imitating a successful P&G strategy in another country. (A classic example was Colgate’s entry into the French disposable diaper market by replicating P&G’s German Pampers strategy,